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How painful is spending money? Dan Ariely, who teaches behavioral economics at Duke University, has conducted a group of experiments dealing with how painful spending money really is. He asked people if, when they were dining out, they would prefer to pay with cash or by credit card. The overwhelming response was that they preferred to use the credit card.
He concluded that people feel that it's less painful to pay by credit card. He also suggests that people will spend more money with credit cards than with cash because credit card buying is less painful.
How much do you want to save? Another part of Ariely's theory is that people think in terms of percentages when they spend money. To test this out, he asked people if they would buy an item for $15, would they walk five blocks if they could buy it for $8? Most people said they definitely would do so. However, when he asked participants if when buying a suit for $1,015, would they walk five blocks if they could save $7, then guess what -- overwhelmingly they said no.
In another example, shoppers spend a lot of time deciding which tomatoes to buy and whether or not to save 20 cents, yet those same people wouldn't think twice about remodeling their house for $20,000.
So too it is with credit cards. If you have a $1,500 balance, it's easy to add another $100 because it's just a small part of of the total.
Do you use cash or credit cards?
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